Why disruption is often so easy

Clay Christensen is famous for his disruption theories. Lately, interestingly, he has been bringing examples of some large companies that have been successful at innovating and hence disrupting themselves.

One of the key point so this theory is why existing large players find it so difficult to innovate disruptively, and therefore give opportunity for tiny startups to overturn their markets. Essentially, it is in their DNA, and hence organization structure, projects, budgets and even comp plans, to protect their existing markets and squeeze more cash out of them.

Ironically, though, sometimes that very nature actually squeezes less cash out of existing markets while simultaneously opening the doors to disruptive players. It is one thing if an incumbent maximizes cash today at the expense of tomorrow; it is short sighted, but at least understandable. It is quite another when that same mentality minimizes cash today and tomorrow.

Today’s Wall Street Journal has a front page article on the rapidly escalating prices of ebooks. Most people expect that ebooks will cost less than printed copies. After all, the publishers (and retailers) are saving on physical printing costs, shipping, storage, and security. I do not know what the COGS are in the book business, but in the ebook business, they are essentially zero. An ebook that is a few MB in size does not even register as beyond a penny in Amazon or Barnes and Noble’s storage and bandwidth costs. Us customers expect that the cost savings will be passed on to them, at least in part. They are willing to give up in some of that in exchange for the convenience and easy replicability of the ebook, but not all of it.

The WSJ article explicitly states that ebooks sales will drop, or at least not rise as high as they would otherwise due to skyrocketing retail prices. Given that sales will drop, customers will be upset (optics), and thus they will hurt their own business short term while encouraging independent publishers, and perhaps Amazon and BN to become one themselves, why would they do such a self defeating move?

In the end, they are just captive to their existing mindset. They want to protect, preserve and defend their brand and margins, and so they raise prices. The fact that it will undermine, damage and attack not just their short term profits but their long term viability as a business, is something which they find very difficult to grasp.

I look forward to the disrupters.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
This entry was posted in business, pricing, reading. Bookmark the permalink.